Jim Rickards

Germany’s economy contracted. Italy’s economy already contracted. France had two quarters in a row of zero GDP. The United States in the first half did not even grow 1%.

The U.S. was down a lot in the first quarter and up a lot in the second quarter, but much of that was inventories, and if you adjust inventories and make it look like final sales then growth was less than 1%.

China is slowing down and Japan fell off a cliff.

If you look around the world it looks like we’re going into a global recession, but Jim would say it’s a continuation of a global depression which we got in 2007.

This is not a normal recovery or a normal business cycle – this is a depression.

You can have growth in a depression. It’s just that it’s below trend growth of 3 -4% that we’re looking for and is instead 1 – 2%.

In the Great Depression we had two technical recessions, in 1932 and again in 1937, inside the depression.

It looks like it’s happening again and it’s a global slow down.

SANCTIONS AGAINST RUSSIA

The sanctions are supposed to be political – it’s primarily a financial war between the United States and Russia. Europe is being dragged along against their will – a lot of them are NATO members and they have to support the United States.

They may not be happy with what Putin is doing in Crimea, but it’s not an important interest to them – they just want to make sure that natural gas is flowing through the Ukraine.

There’s no question that this is adding another drag on growth.

CHINA

It’s just a matter of time before the China credit bubble collapses.

U.S.

The U.S. is not far behind in terms of their housing and stock bubbles.

This is a set up for at best a continuation of the depression and a technical recession, but at worse a set up for markets breaking and something more like 2008.

EUROPE AND RUSSIA

Jim sees Europe doing as little as possible. The relationship between Germany and Russia is very strong.

Angela Merkel grew up in East Germany, detente, when it was part of the Soviet empire. Vladamir Putin was a KGB stationed in Germany. He speaks German. She speaks Russian. They’ve got a lot going on in terms of the pipeline – there is no more natural alliance than Germany and Russia.

Germany is a technological powerhouse and Russia is a natural resource powerhouse.

Germany needs the natural resources and Russia needs the technology – it’s a match made in heaven.

Jim believes that Merkel is going to do what she needs to do publicly but that Europe will do as little as possible.

GOLD

Italy matters and is one of the largest economies in the world, but they are fourth or fifth in terms of gold holders in the world.

All the members of the Euro zone combining their gold is about 10,000 tonnes, which is more than the United States.

Italy is a major gold power behind Germany. Italy is not as bad off as people think, largely because of their underground economy.

The major Euro zone members are either in or verging on recession, but it’s not unique to Europe. Russia’s economy is also slowing down.

Europe has a lot of gold, they’ve got a sound central banking policy, and they’ve got a lot of assets, including China’s capital.

CHINA

Chinese capital is pouring into Europe because the Chinese want to get away from U.S. dollars.

Europe is not going to escape the world’s problems, but fundamentally Europe is doing a lot of things better than the rest of the world.

Germany is politically a powerhouse of Europe. Germany wants the Euro and the rest of Europe wants the Euro. The politicians complain about the Euro in places like Greece, Spain and Italy, but it’s not good economics to break away from the Euro. You can lower your per unit labour cost without cheapening your currency.

Cheapening your currency only gets you inflation.

The people of Europe in opinion polls love the Euro because they know that if their own countries went back to their old currencies that their own governments would devalue the currency and steal their savings.

The people like the Euro.

Germany likes the Euro.

Jim says that Merkel is the only head of state that understands economics, because she’s not an economist.